SINGAPORE: The city-state’s business climate is showing signs of cautious optimism, according to the latest Business Times-Singapore University of Social Sciences Business Climate Survey.
After nearly two years of declining sales, local companies reported a positive shift in their outlook for the next six months, signalling a potential recovery.
The survey, released in late October, reveals that the net balance for business prospects is 7%, down just slightly by one percentage point from the previous quarter.
A net balance above zero indicates an expansionary outlook, reflecting a gradual improvement despite global uncertainties.
The net sales balance turned positive for the first time in two years, rising by eight percentage points to 6%. This marks the end of a protracted seven-quarter contraction phase—the fifth such downturn since the survey began in 1996.
However, experts pointed out that while sales are improving, the recovery is stronger in overseas markets than domestically.
Survey consultant Chow Kit Boey noted that the net balance for domestic sales was lower than for international sales, suggesting that local demand remains subdued.
This aligns with broader economic trends as Singapore’s export-driven recovery continues to gain momentum.
Global factors and export recovery
Economists believe external factors are playing a key role in this shift. OCBC Chief Economist Selena Ling highlighted the recovery in the global electronics sector as a potential catalyst alongside China’s stimulus measures to stabilize its economy.
The improvement in overseas sales could also be tied to preemptive purchasing by foreign customers, especially ahead of potential trade disruptions linked to the U.S. presidential elections.
“It’s not a total surprise that overseas sales may have outperformed domestic sales, which were possibly restrained by the gradually cooling local labour market conditions,” Ling noted.
Meanwhile, new orders and business saw a continued easing of contraction, improving by three percentage points to a -6% net balance in Q3, marking the fourth consecutive quarter of improvement.
However, profitability remains a challenge. The net profit balance remained unchanged at -10%, reflecting persistent cost pressures.
Rising costs and policy shifts
Despite the signs of recovery, economists warn that businesses may face mounting challenges ahead. Maybank economist Brian Lee noted that policy-induced cost increases, especially manpower, will likely continue to strain profitability.
Starting in September 2025, the minimum qualifying salary for S-Pass holders will rise to S$3,300, and the levy rate for Tier 1 workers will increase to S$650.
Additionally, the minimum salary for Employment Pass holders is set to rise to S$5,600 by January 2025.
These higher labour costs could further squeeze margins, especially for firms already grappling with inflation and rising operating expenses.
Financial services and commerce shine
While most sectors remain under pressure, the financial and business services industries bucked the trend, with more companies in these sectors reporting improved profits in Q3.
Both the financial services and commerce sectors were highlighted as “star performers” in the survey, with companies in commerce reporting expansion in orders and new business.
Looking ahead, businesses are increasingly bullish about the prospects in Southeast Asia.
Indonesia, Singapore, and Malaysia topped the list of countries with the best business opportunities in the next 12 months, accounting for 55% of the responses.
While Singapore still shares the top spot with Indonesia, the city-state’s share of votes has fallen, with more companies now seeing Indonesia as a key growth market.
The shifting sentiment towards Indonesia is partly attributed to the recent political changes.
Maybank’s Lee pointed to the rising attention on Malaysia’s growth potential, particularly in sectors like semiconductors and data centres, as well as major infrastructure projects such as the Johor-Singapore Special Economic Zone.
Outlook
Looking ahead to the final quarter of 2024, Chow expects Singapore’s GDP to grow by 3.7% to 4%, which aligns with the expectations of a steady recovery in the manufacturing and services sectors.
Full-year growth is forecast to be around 3.4% to 3.5%, with economists from DBS and Maybank projecting a similar range.
However, uncertainty remains high, particularly with the potential impacts of U.S. President Donald Trump’s policies on regional trade.
DBS economist Chua Han Teng cautioned that Trump’s focus on protectionism could dampen business sentiment, particularly in export-driven sectors.
While Singapore’s business outlook has improved following a prolonged contraction, the path to sustained growth remains uncertain.
External factors such as global trade dynamics, rising labour costs, and geopolitical risks will continue to shape the economic landscape for Singaporean companies in the coming months.
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